******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) CSR 5145-E ) Marcus Cable Associates, L.P. ) Whittier, CA ) Petition for Determination ) CA0189 Effective Competition ) MEMORANDUM OPINION AND ORDER Adopted: May 1, 1998 Released: May 5, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Marcus Cable Associates, L.P., d/b/a Marcus Cable ("Marcus"), filed a petition asserting that it is subject to local exchange carrier ("LEC") effective competition in Whittier, California from Pacific Bell Video Services ("PBVS"), d/b/a Pacific Bell Digital TV, a digital wireless cable operator serving Los Angeles and Orange counties, California. 2. Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act") allows franchising authorities to become certified to regulate basic cable service rates of cable operators which are not subject to effective competition. For purposes of the initial request for certification, local franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to effective competition unless they have actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing unless the Commission finds that the authority does not meet the statutory certification requirements. In Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 ("Cable Act Reform Order"), the Commission instructed cable operators believing themselves subject to local exchange carrier ("LEC") effective competition under Section 623(l)(1)(D) of the Communications Act to file a petition for determination of effective competition pursuant to Section 76.7 of the Commission's rules. Section 623(l)(1)(D) of the Communications Act provides that a cable operator is subject to effective competition where: a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to- home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area. II. THE PLEADINGS 3. Marcus argues that it is subject to LEC effective competition in Whittier, California from PBVS, a digital wireless cable operator serving Los Angeles and Orange counties. With regard to the LEC affiliation requirement, Marcus contends that the corporate relationships that exist between PBVS, Pacific Telesis Group ("PTG"), Pacific Telesis Enterprises ("PTE"), and SBC Communications Inc. demonstrate that PBVS is a LEC affiliate. Marcus asserts that PBVS is an affiliate of PTG, one of the seven Regional Bell Holding Companies established after the 1984 divestiture of AT&T. Marcus states that PTG owns Pacific Bell and Nevada Bell, two operating landline telephone companies and LECs which are affiliates of PBVS and PTE. Marcus claims that PBVS's own marketing materials identify it as a Pacific Telesis Company. Marcus further asserts that PTE is a wholly-owned subsidiary of PTG. Finally, Marcus states that PTG is owned by SBC Communications Inc., which is also a LEC. 4. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, Marcus asserts that PBVS is physically able to deliver service to potential subscribers in Whittier. Marcus explains that PBVS provides digital wireless cable service to Los Angeles and Orange counties through the use of two MMDS transmitters, which are located at Mt. Wilson in Los Angeles County and Modjeska Peak in Orange County. Marcus provides a map showing that Whittier, which is located in Los Angeles County, is within the 35-mile protected zone of PBVS's Mt. Wilson transmitter. Marcus states that PBVS currently serves over 50 subscribers in Whittier and that a Marcus employee who resides in Whittier presently receives PBVS's service. Marcus further contends that Whittier residents are reasonably aware of PBVS's video service offering. Marcus argues that the existence of actual PBVS subscribers in Whittier is evidence of customer awareness and demonstrates that PBVS is physically able to provide service to Whittier. In addition, Marcus submits examples of PBVS's direct mail marketing flyers which Marcus claims have been distributed "throughout Los Angeles County." Marcus also asserts that local newspapers, such as the Los Angeles Times, have reported on the launch and availability of Pacific Bell Digital TV. Marcus states that according to recent trade reports, PBVS has more than 10,000 customers. Finally, Marcus contends that no regulatory, technical or other impediments exist to the receipt of PBVS's service in Whittier. 5. Marcus asserts that PBVS offers programming comparable to that offered by Marcus in Whittier. Marcus provides PBVS's channel line-up which demonstrates that PBVS's most basic service consists of 49 channels of video programming, including 13 local television broadcast signals. III. ANALYSIS 6. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition, as defined by Section 76.905 of the Commission's rules, is present within the franchise area. Marcus has failed to meet this burden. While Marcus partially satisfies the LEC test for effective competition by demonstrating that PBVS is a LEC affiliate that provides comparable programming, Marcus fails to establish that PBVS "offers" service as contemplated by the statute and our rules. 7. With regard to the first part of the LEC test, which requires that the alleged competitive service be provided by a LEC or its affiliate (or any multi-channel video programming distributor using the facilities of such LEC or its affiliate), Marcus has provided sufficient evidence demonstrating that PBVS is LEC-affiliated under the Commission's interim rules. The corporate relationships that exist between PBVS, PTE, PTG, and SBC establish PBVS's LEC affiliation. Additionally, we find that Marcus is unaffiliated with PBVS, PTE, PTG or SBC. 8. We also find that Marcus has submitted sufficient evidence demonstrating that PBVS provides programming comparable to Marcus' channel line-up in Whittier. PBVS's most basic service consists of 49 channels of video programming, including 13 local television broadcast channels, which satisfies the programming comparability criteria. 9. As to the requirement that the LEC competitor "offer" service, Marcus has not met its burden. Marcus has failed to establish that PBVS "offers" service because Marcus has not presented sufficient evidence that subscribers in Whittier are reasonably aware that they may take service from PBVS. Cable operators seeking to prove that they are subject to effective competition from a LEC or its affiliate must not only show that the competitor is physically able to deliver service free of any regulatory, technical or other impediments but that subscribers are "reasonably aware" that they may purchase the competitor's service. Consumer awareness of a competing service is an essential element of the offer requirement of the LEC effective competition test. 10. We have stated that potential subscribers may be made reasonably aware of the availability of a competing service through, for example, advertising in the media or direct mail. We have also stated that cable operators seeking to prove that they face effective competition may rely on marketing information to demonstrate consumer awareness of the competing service. In this instance, Marcus submits examples of PBVS's direct mail marketing materials. Marcus does not present evidence that PBVS has engaged in any type of mass media marketing. 11. The direct mail materials submitted by Marcus are not sufficient to demonstrate that potential subscribers in Whittier are aware of PBVS's service. Although Marcus claims that the marketing materials were distributed "throughout Los Angeles County," there is no evidence in the record defining the scope of the direct mail campaign. Specifically, there is no information concerning how many subscribers in Whittier, if any, were actually sent mailings. 12. Marcus points to articles on the launch of PBVS as evidence that subscribers in Whittier are reasonably aware of PBVS's service. These articles and others, for the most part, describe the launch of PBVS's video service as a "gradual roll-out" and as "low key." It appears that some subscribers were targeted for the mailings while many other potential subscribers were not solicited. Former PBVS Vice President and General Manager Jeff Carlson has said that the company is purposely controlling the number of subscribers to "contain demand." According to Carlson, the company will add new customers gradually to ensure high-quality service. Carlson has also stated that "[a]s for the advertising, we are doing a very controlled rollout; it is conservative by design. We have limited our marketing to very specific demographics." 13. Marcus' submission of a PBVS subscriber bill addressed to a Marcus employee residing in Whittier does not persuade us that residents of Whittier are reasonably aware that they may purchase service from PBVS. That certain specific subscribers are aware of PBVS because they are employees of the cable operator or PBVS or were specifically targeted does not mean that subscribers in Whittier generally are informed that there is an alternative video service provider to the cable operator. The cable operator must submit evidence demonstrating that potential subscribers in Whittier, not only segments of the population that may have been specifically targeted or handpicked for solicitation, are reasonably aware that they may purchase services from a video provider other than the cable operator. Because evidence of a broad awareness of the existence and availability of PBVS's service is lacking, we find that Marcus has failed to prove that PBVS "offers" service in Whittier. 14. As a general matter, we note that evidence presented by cable operators regarding the number and location of subscribers to the competing service shows that the competitor is physically able to deliver service. Such evidence, in most cases, can also reflect the degree subscribers are reasonably aware of the competing service since they are, in fact, receiving it. However, in this instance, the PBVS subscriber figure submitted by Marcus does not persuade us that consumers in Whittier generally are knowledgeable about PBVS's service. The number of households in Whittier is roughly 29,000. The number of subscribers that Marcus claims are definitively aware of PBVS's service because they receive it is 50. This figure represents only .17% of the total number of households in Whittier (50 ö 29,000 = .17%). Given the lack of information concerning the scope of PBVS's direct mail campaign as well as what appears to be PBVS's incremental marketing strategy, that PBVS has some subscribers in Whittier does not convince us that subscribers throughout Whittier are reasonably aware of the availability of PBVS's service. 15. We find that Marcus has failed to submit sufficient evidence demonstrating that its cable system serving Whittier, California is subject to LEC effective competition from PBVS. Marcus' petition is denied. IV. ORDERING CLAUSES 16. Accordingly, IT IS ORDERED that the Petition for Determination of Effective Competition filed by Marcus Cable Associates, L.P., d/b/a Marcus Cable, challenging the certification of the local franchising authority in Whittier, California IS DENIED. 17. This action is taken pursuant to the interim rules adopted in Implementation of Cable Reform Provisions of the Telecommunications Act of 1996, 11 FCC Rcd 5937 (1996), and is without prejudice to any further action taken by the Commission in adopting final rules pursuant to the Notice of Proposed Rulemaking contained therein. 18. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau